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1 Anti-money laundering and counter -terrorist financing measuresSpain1st Regular Follow-up report & Technical Compliance Re-RatingMarch 2018 Follow-up report The Financial Action Task Force (F ATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering , terrorist financing and the financing of proliferation of weapons of mass destruction. The fatf Recommendations are recognised as the global Anti-money laundering (AML) and counter -terrorist financing (CTF) standard. For more information about the fatf , please visit the website: This document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

2 This assessment was adopted by the fatf at its February 2018 Plenary meeting. Citing reference: 2018 fatf . All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the fatf Secretariat, 2 rue Andr Pascal 75775 Paris Cedex 16, France (fax: +33 1 44 30 61 37 or e-mail: fatf (2018), Anti-money laundering and counter -terrorist financing measures - Spain, 1st Regular Follow-up report & Technical Compliance Re-Rating, fatf , Paris 1 SPAIN: 1ST REGULAR FOLLOW-UP report & TECHNICAL COMPLIANCE RE-RATING SPAIN: 1st REGULAR FOLLOW-UP report 1. INTRODUCTION The mutual evaluation report (MER) of Spain was adopted on October 2014. This follow-up report analyses Spain s progress in addressing the technical compliance deficiencies identified in its MER.)

3 Re-ratings are given where sufficient progress has been made. This report also analyses Spain s progress in implementing new requirements relating to fatf Recommendations which have changed since the MER was adopted: Recommendations 5, 7 and 8. Overall, the expectation is that countries will have addressed most if not all technical compliance deficiencies by the end of the third year from the adoption of their MER. This report does not address what progress Spain has made to improve its effectiveness. A later follow-up assessment will analyse progress on improving effectiveness which may result in re-ratings of Immediate Outcomes at that time. 2. FINDINGS OF THE mutual evaluation report The MER rated Spain as follows for technical compliance: Table 1. Technical compliance ratings, October 2014 R 1 R 2 R 3 R 4 R 5 R 6 R 7 R 8 R 9 R 10 C LC LC C LC PC PC LC C LC R 11 R 12 R 13 R 14 R 15 R 16 R 17 R 18 R 19 R 20 C C C C C PC LC C C C R 21 R 22 R 23 R 24 R 25 R 26 R 27 R 28 R 29 R 30 C LC C LC LC LC C LC C C R 31 R 32 R 33 R 34 R 35 R 36 R 37 R 38 R 39 R 40 C C C C C C C C LC C Note: There are four possible levels of technical compliance: compliant (C), largely compliant (LC), partially compliant (PC), and non-compliant (NC).

4 Source: Spain mutual evaluation report , October 2014, Given these results and Spain s level of effectiveness with the different Immediate Outcomes, the fatf placed Spain in regular The following expert assessed Spain s request for technical compliance re-rating and prepared this report : 1 Regular follow-up is the default monitoring mechanism for all countries. Enhanced follow-up is based on the fatf s traditional policy that deals with members with significant deficiencies (for technical compliance or effectiveness) in their AML/CFT systems, and involves a more intensive process of follow-up. 2 SPAIN: 1ST REGULAR FOLLOW-UP report & TECHNICAL COMPLIANCE RE-RATING Mr.

5 Diego Bartolozzi, Unit d Informazione Finanziaria Banca d Italia, FIU Italy (Law enforcement/ Financial Expert). Section 3 of this report summarises Spain s progress made in improving technical compliance. Section 4 sets out the conclusion and a table showing which Recommendations have been re-rated. 3. OVERVIEW OF PROGRESS TO IMPROVE TECHNICAL COMPLIANCE This section summarises Spain s progress to improve its technical compliance by: Addressing the technical compliance deficiencies identified in the MER, and Implementing new requirements where the fatf Recommendations have changed since the MER was adopted ( , and ). Progress to address technical compliance deficiencies identified in the MER Spain has made progress to address the technical compliance deficiencies identified in the MER in relation to the following Recommendations: , and , rated PC and , rated LC As a result of this progress, Spain has been re-rated on Recommendations: 5, 16 and 39.

6 The fatf welcomes the steps that Spain has taken to improve its technical compliance with Recommendations: 6 and 7; however, insufficient progress has been made to justify a re-rating of these Recommendations. The fatf also welcomes additional progress presented by Spain for Recommendations 2, 3, 10, 17, 22, 24, 25, 26 and 28, all of which is briefly summarized in section below. Recommendation 6 ( ) (Originally rated PC no re-rating) In relation to UNSCR 1267/1989 and 1988, the main deficiency was that the implementation of targeted financial sanctions (TFS) did not, and does not occur without delay , thereby raising the question of whether such implementation takes place without prior notice to the designated person or entity. In 2013 (before Spain was assessed in 2014), transposition times ranged from 7 to 29 days for UNSCR 1989 designations, and 7 days to months for UNSCR 1988 designations.

7 Since the MER was adopted, the delays in transposing lists into the EU legal framework have been reduced. However, some delays remain. Implementation during 2017 took an average of In relation to UNSCR 1373, the main deficiencies were the absence of a clear mechanism to request non-EU countries to give effect to the EU list and no clear channels or procedures at the domestic level to give effect to actions initiated 2. Considering the number of days between the UN designation and the EU regulation and publication may be calculated by referencing to the UN listing ( ) and the publication in the EU Official Journal ( ). 3 SPAIN: 1ST REGULAR FOLLOW-UP report & TECHNICAL COMPLIANCE RE-RATING domestically.

8 Under the EU legal framework, listed EU internals were not subject to freezing measures, and domestic measures did not fill the gap. To address these deficiencies, Spain issued a Guidance of good practices for the implementation of targeted financial sanctions and countermeasures. This guidance covers, among other things, the means of obtaining lists of designated persons and entities, dealing with databases, record-keeping, and dealing with matches. In particular, good practice 8 notes that entities should be familiar with and consider United Nations lists even before approved by the European Commission (Commission) which could help speed up the process. Spain also approved Royal Decree 413/2015 in May 2015, which further develops the role of the Commission for the Surveillance of Terrorist Financing Activities (Watchdog Commission) created in 2003.

9 These instruments clarify the channel and procedures for giving effect to actions initiated domestically. However, they do not create a clear mechanism to request non-EU countries to give effect to the EU list. Authorities indicated that the Ministry of Foreign Affairs, as member of the Watchdog Commission, is able to channel petitions to third countries, with all relevant safeguards, however this is not specifically included as part of the Watchdog Commission s functions (art. 5). Regarding the application of freezing measures to listed EU internals, a matter that was also outstanding, the EU sanction framework was also updated after Spain MER, among others, to include the possibility of designating and freezing the assets of individuals related to ISIL (Da'esh) and Al-Qaeda, without distinction of nationality (that is, including EU internals) through EU Council Regulation 2016/1686 and EU Common Position Paper 2016/1693 issued 20 September 2016.

10 At the same time, of Royal Decree 413/2015, regulating the Watchdog Commission, enables the Commission to designate terrorist organizations or individuals at its own initiative, without regard for nationality and would therefore cover EU internals. There was also some concern with regard to extending freezing measures and prohibitions coverage to funds or assets controlled by, or indirectly owned by, or derived from assets owned by, or owned by a person acting at the direction of, a designated person or entity (definition of funds in the EU framework) which is pending to be addressed. Spain has made progress in addressing the technical deficiencies identified in relation to However, moderate shortcomings remain and, consequently, the level of compliance with remains PC.